Open the Books
Sharing your financials can improve your financials

09 Aug 2000

by Jeff Schmidt

"But how will we know who kills more?" queried his cynical pal.

"We'll count them," replied the genius.

Knowing what was at stake, and always knowing what the score was, they each hunted especially hard that day. They killed twice as many Cave-deer as normal, and even got another bear. They both slept well that night.

Competition, we know, breeds excellence. But to compete, you have to know the score.

Business Is A Competition

Modern business, of course, is also a competition, often with more then a good nights sleep at stake. And businesses keep score too. We call it accounting. The odd thing is, few businesses tell their employees what the score is. They rob their employees of the ability to count, and consequently remove a huge incentive to excel.

Most businesses restrict Profit and Loss (P & L) Responsibility to upper management, creating an artificial division in the corporation and forcing most of their employees to work only for a paycheck, ignorant of their contribution to a company's success.

Proponents of Open-Book Management dismiss this division as counterproductive. Every employee, they say, has P & L Responsibility, whether they know it or not.

Profit Is Everyone's Job

"I learned long ago that you need everybody pitching in. But in a lot of cases... out of ignorance, people ended up working against management because they didn't understand all the drivers," says Bob Bloncheck, CEO and Founder of ActLikeAnOwner.com, an operating and e-commerce platform for the procurement of IT professionals. He believes that, "Everybody in the organization has got to be customer focused. They've got to know what drives the organization to success. And if you want people to make good decisions in that kind of an environment, you have got to give them the information."

Cynthia Driskill agrees. When she gave up the sales beat and began devoting her full attention to the CEO responsibilities at her 20 million dollar HRIS consulting company, CDG & Associates, Inc., she immediately realized the importance of financial data to her decision-making. And she knew that her employees needed that same information in the field if she wanted them to make great decisions. "Because we have a virtual company, our employees live anywhere in the country, and our clients are everywhere. So a consultant will be in the field, and they just don't have anyone looking over their shoulder - we're depending on them to do their job."

And their job, ultimately, is to generate profit.

That, in fact, is the job of every employee at every company. Whether they are a car washer, or a car salesman, a stock boy or a stockbroker, their job exist because somehow, someway, it affects the bottom line.

But it's easy for some employees to forget this. For weeks and years on end, they come in, polish their widget, get their paycheck, and go home. Never knowing how they affect profit, never knowing how the company is doing, and probably never caring. They care about their job, sure, but traditional management styles have done such a good job separating individual's jobs from the company as a whole that employees may not see the connection.

What Open-Book Management does is re-establish that connection. By opening up the financial records of a company to all its employees, teaching them to understand them, and giving them a share of the profits, OBM creates an entire team of individuals uniquely focused on success.

Here's how.

OBM Builds Trust

"In terms of the whole them and us conversation, if everyone has the information, and there's nothing being hidden, the level of trust goes way up in the organization. It doesn't become about 'management is trying to screw me.' It becomes 'oh, look what we're doing together.' And I think that's really important," says Lynn Parker, Co-Founder of Parker Lepla, a brand development and high tech public relations firm based in Seattle.

Sharing the financial details of a private company sends a powerful message to its employees. It says that management trusts its employees immensely, and it knows they can have a great impact on the success of the organization. It says that it values their contribution.

Jack Vercollone, owner of Verc Rentals, echoes that sentiment, "[Employees] realize that they have the right to ask any question: 'why is this expense high in entertainment, or travel, or whatever.' I think it helps with the trust there." Vercollone's four years experience with OBM at his car rental company has also taught him the benefits of group intelligence.

Fifty Heads Are Better Than One

"It does work in the long run, to get a lot of different thoughts on the financial statements," says Vercollone.

This is especially true in turbulent times. Companies invariably suffer the whims of the marketplace, often coming frighteningly close to disaster. Managers have long used this as an excuse to 'protect their employees' from the stress of entrepreneurship, worrying that bad financial news would have a demoralizing affect on the troops. And it will. But it will also invigorate them.

As Lynn Parker puts it, "I really trust in the intelligence of the group. I'm one person, with a lot of strong opinions. But when you get a bunch of people who all have a vested interest in it all turning out well, with different points of view, you get much better decisions."

Cynthia Driskill would certainly agree. Last year the market her company operates in had a major shakeout, forcing many of her competitors to lay people off. Because of the experience her people had dealing with financials and thinking like owners, she was able to tap their intelligence.

As she explains, "I sent out an email and said to everybody 'here's the situation, here's the risk, here are things that I think you might be able to do to help, and what else can you do. Tell us what else you can do?' And we started to have a continual email dialogue between everybody at the company, and you have to say that worked." While their market was in the tank, and competitors were downsizing, CDG & Associates grew 57%.

Besides, sheltering workers from the challenges of business also shelters them from the joys.

Business Is Fun

The joy of business is something CEO's and entrepreneurs have experienced for years. It's also a central theme of Open-Book Management, as illustrated by the title of Jack Stacks seminal work on the topic, "The Great Game of Business." Game being the operative word here.

John Case spells it out pretty clearly in his own book, "Open-Book Management," when he says, "Running a business is fun. It's rewarding. Satisfying. You match wits with the marketplace every day. You're a player in the most important game around. If you win--if you do well--you can make some real money." But unless you share the rules and score with employees, they're more likely to see themselves as wage-slaves.

Getting employees more involved in the business was exactly what Jack Vercollone had in mind when he began using OBM four years ago at Verc Rentals. But he had a bit more in mind then just sharing some entrepreneurial adrenalin. Vercollone was inspired by John Paul II's Encyclical on Labor, which extols the dignity of man and warns that capital should not precede labor.

The purpose of work, says the Pope, is to benefit the laborer, not continually make profits. "[Employees] are people that have dignity, they have a family to raise... and they should be involved. They work for more than just a paycheck. They work for their own ego, their own pride, and their own feelings that they're important," says Vercollone.

Stack's book on Open-Book Management gave Vercollone the practical tools he needed to implement his vision. The less egalitarian among us might also be interested to know that Verc Rentals went from a 2.5 to a 4.5 million dollar company since instituting OBM.

Nurturing dignity and pride in your workers will also help you hold on to them when a competitor offers them a raise.

Owners Don't Quit

"Everybody's a free agent these days. Anybody can walk and get a higher bid somewhere else, tomorrow," explains Lynn Parker, of her high competition, high tech workplace. But Parker had a vision of how to succeed in that space. "That vision was to create a group of people who all acted like owners," says Parker. OBM was the way she did that. And her experience in such a tight labor market has confirmed her hunch. "It's really confirmed the rational for doing it, because our retention and longevity of employees is unmatched in the industry."

Open-Book Management goes beyond the 'golden handcuffs' of stock options. Unless matched with detailed information about how the company operates, stock options are simply another way of using money, or the promise of it, to retain workers. And you can be outbid. But OBM as a whole takes the extra step of giving employees a true feeling of ownership.

An example from CDG & Associates' early years illustrates the point. Cynthia Driskill's company was low on cash, so she ran a contest to increase the cash the corporation held in the bank. Employees could keep a third of the increase if they reached a certain goal. And they did. "It was a wonderful lesson. They hit the goal, they got the bonus. But what was more important was they felt empowered. They recognized the impact they could have," says Driskill. Empowered workers, who can see their impact on a company, are a lot less likely to leave.

But in order to see that impact, or even to make one, employees need the right tools. As Bob Bloncheck puts it, "If I'm making the decision as a CEO, I can go to the accounting department, I can go wherever I need to get all the data to make the best decision I can. If I'm asking employees to do the same thing - make good decisions- and empowering them to do it, I'd better give them access to the information."